VAT query

[Spunkymonkey2019]

Quick question I hope some one can help!
Please excuse my explanations if they aren’t great!

I know the threshold to become VAT registered for a business is £85,000 in 12 months. A builder for this example has yet to reach that taxable turnover, or so he thought! Now he’s been told he’s over the threshold.

So say a builder, builds an extension worth £22,000 which included labour and materials. The actual profit that the builder walks away with is £5000.
Then another at £28,000 and £7,000 profit.
Another at £28,000 and £7,000 profit
A last at £18,000 and £4,000 profit.

So a total of £94, 000 in 12 months which includes labour, materials etc
A total profit of £23,000 profit (wage/income?)

When the tax for VAT purposes is calculated to put them over that VAT threshold of £85,000, do they use that £94,000 total or will it be £94,000 minus £23,000 (income/salary/wage) so the total would be £71,000?

Hope I’ve explained what I’m asking!!!!

Its done on turnover not on profit. And no you don't deduct salary first

The threshold is based on turnover not profit so in your example the total income of 94k takes you over the threshold and would mean you need to register for VAT.

It is what has been taken before any expenses deducted so the 94,000 in your example.

It’s the total turnover (so 94k in your example). You’re quoting “taxable turnover” when the definition is really “VAT taxable turnover” so it’s everything you sell that would be liable to VAT. Sorry, probably not the answer you wanted.

It's essentially the total of the invoices sent.

I do always wonder how on earth any builder is not vat registered...

It’s not real don’t worry! It is an example, this actually forms part of a question my son had as a legal question- but I had to pad it out a bit just for it to make sense without write a whole page scenario!

He was reading something online last night and it said that VAT was only worked out ‘minus the income’. And we sat here debating it last night as we couldn’t make sense of it, then we thought we may have been incorrect in our thoughts of it. So I thought there may be a lot of professionals that could confirm this for him!

Thank you you’ve confirmed what we thought and understood. (FWIW the question then goes on to year 2-5, earning different amounts, and obviously where he would stand from a legal stand point had he not VAT registered etc.)

Hats off to all of you that work in law, it wasn’t until my ds started his studies did I realise how tricky wording alone can be!

They mean you deduct your vat paid out in order to work out how much you owe. You have a turnover of £100k you have a 20 percent vat liability ie 20k but you bought goods of £10k plus vat of £2k. You deduct the vat you paid out when calculating your liability.